What you need to know:
Tax exemptions and incentives seek to offer players in strategic sectors of the economy such as manufacturing, among others, ample space to grow their capacity and sustainable operations.
Tax can be an emotional topic. The last month has proved as much judging by the heated debate on the “Vinci coffee agreement” that has dominated social media platforms, the airwaves, and watering holes.
One of the contentions is the generous tax incentives extended to the investor that are perceived to be unfair and discriminatory to Ugandans.
The agreement in itself and the conversations that followed were a huge opportunity for the relevant government agencies to educate, inform and sensitize Ugandans about the various incentives that exist in our tax laws and how they can be taken advantage of, provided that the applicable conditions are met.
What are some these incentives?
Any foreigner who sets up an investment inside or outside an industrial park such as Namanve or free zone is exempt from income tax provided that they invest at least $10 million for at least 10 years.
Free zones are designated areas in Uganda where duty-free goods are stored, manufactured, or processed for export. All domestic and foreign investors who export 80 percent and more of their output are eligible to invest in free zones.
To benefit from this incentive, 70 percent of the raw materials used must be locally sourced. Further, 70 percent of the workforce must be Ugandan and accounting for 70 percent of the total wage bill.
This exemption is ringfenced for specific categories of businesses such as the processing of agricultural goods, vocational or technical institutes, manufacture of medical appliances or pharmaceuticals, and commercial farming.
How about Ugandans? You ask. The investment capital is substantially lower for Ugandans at $ 300,000 (about Shs1.1 billion). Better still, a Ugandan who invests in their hometown or city be it Fortportal, Masaka, Kanungu, Nwoya, Nakapiripit, Zombo, name it, needs only $150,000 (about Shs 540 million) for investments made upcountry.
Excise duty incentives exist to facilitate the construction of these facilities. For example, the construction materials of a factory or warehouse (excluding those available on the local market), are exempt from excise duty provided that capital, raw materials, and workforce conditions mentioned above are met.
The facility, once constructed, must have the plant and machinery necessary to produce the intended goods be they coffee capsules, veterinary drugs, agrochemicals or even milk.
The equipment, which is often purchased very expensively from far markets, will enjoy duty-free importation into Uganda following the EAC Common External Tariff (CET) which sets the tariff at 0 percent. This too applies to certain raw materials within the framework of the EAC CET. Even the packaging material that is designed to package goods for export is exempt from import duty.
What is more, VAT on the importation of plant and machinery that would ordinarily be payable at a standard rate of 18 percent is deferred subject to an inspection of the plant by URA. Upon confirmation of its installation, the VAT liability is discharged. What a saving.
Once the facility is ready to start production, you then need people to operate it be it in management, the factory floor or sales and distribution.
At this point, it is important to bear in mind the condition requiring the Ugandanisation of the workforce both in terms of composition and the Wage Bill.
However, there are times when it is necessary to hire expatriates, for example, due to a local skills gaps or limited industry knowledge. A case in point is the oil and gas sector.
Even a Ugandan-owned business can choose to hire expatriate employees provided that they can demonstrate that the skills required are not locally available.
To this end, the NSSF Act exempts expatriates from making NSSF contributions provided that they obtain a certificate of exemption from the Managing Director of the NSSF. This will only be granted where it can be shown that the expatriate is not ordinarily resident in Uganda and is liable to contribute to a social security scheme in another country.
When production starts, excise duty exemptions are available to any investor (subject to the conditions already discussed) on the purchase of locally produced raw materials and inputs for use in the production process.
The above incentives are not exhaustive. Naturally, the capital requirements for foreign investors are significantly higher than for local investors.
This is because while it is important to attract foreign capital and inward investment, it is even more important to encourage and support local industry, content, innovation, and value addition.
Now that the dust is settling, we should steer the debate to how best to mobilise and organise ourselves and our limited resources to take advantage of these incentives and grow Uganda for Ugandans.
The author, Crystal Kabjwara is a business advisor with PwC Uganda